A Clear Path for Voice Control

A Clear Path for Voice Control

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Unless you’ve been living under a rock for the past year, you know that voice controlled Smart Home technology is taking over the tech industry and consumer electronics scene. This past January, the annual Consumer Electronics Show (CES) was chock-full of stainless steel refrigerators and high tech washing machines, all with Amazon’s voice-activated AI software, Alexa, built in. CES 2017 was dubbed by some as “The Year of the Amazon Takeover,” however, Amazon isn’t the only tech giant to venture into the realm of voice-activation: Google launched the Google Home smart speaker in late 2016, exactly two years after the Amazon Echo speaker (featuring Alexa) made its debut. Even later to the party, Microsoft just announced partnerships with HP and Harman Kardon to support Cortana (Microsoft’s version of Siri) in their speakers. Speaking of Siri, Apple just announced a Siri-enabled smart speaker, called HomePod, which will be available this December.

These “smart” speakers have proven themselves to be cool technology, but, for the most part, were  trading more on novelty value than utility. Until recently, Amazon’s Alexa enabled Dot and Echo speakers excelled at only three things: purchasing items off Amazon; playing music from a long list of streaming services or Internet radio stations; and pranking your roommate by setting it’s alarm for 3:00 am, 3:10 am, 3:20 am, and 3:30 am. A pretty solid list of features, sure, but it’s by no means the “Smart Home of the Future” we were promised.

That’s why CES 2017’s “Amazon Takeover” was actually a pretty significant breakthrough for Smart Home enthusiasts. Until recently, Smart Home gadgets such as smart thermostats and security systems were seen as standalone items. What Amazon is attempting to do this year (and succeeding at it, thus far) is to position its Alexa voice-activated speakers as the Smart Home’s “Central Hub,” from which, all of the individual smart devices in your home can connect, and be controlled. (Hence, the influx of gadgets and appliances with Alexa capabilities.)

And this isn’t an unwelcomed shift: according to new market data from Parks Associates, 55% of U.S. broadband households want to use their voice to control their Smart Home and entertainment devices. Moreover, they expect products to work together through “their entertainment systems, including automated voice assistant products like the Amazon Echo and Google Home.”

Additionally, at their annual “CONNECTIONS: The Premier Connected Home Conference,” Parks Associates announced a comprehensive IoT forecast that predicts 442 million connected consumer devices (entertainment, mobile, health, and smart home) will be sold in the U.S. in 2020. The fastest growing category in IoT, and the top trend of 2017, is, unsurprisingly, speakers with voice control (like the Amazon Alexa and Google Home), with a CAGR of 78.3% in 2015-2020. According to Elizabeth Parks, SVP, Parks Associates: “Parks Associates research shows U.S. consumers will buy more than 2.3 billion connected devices between 2015 and 2020, and they are showing strong preferences for voice as the interface for their devices. Companies in the smart home, entertainment, and connected car ecosystems are pursuing partnerships that can add voice control to a variety of solutions in the connected home.”

But developing Alexa or Google Home enabled smart products is only the first step. In order to achieve true, whole home connectivity, these products need to be able to work wirelessly through a reliable platform to communicate with each other. The truth is, Smart Home technology in its current form doesn’t lend itself to whole home, or even multi-room systems. Conventional WiFi uses TCP (Transmission Control Protocol) which was designed in the 1960’s for transferring files down wired Ethernet lines, not connecting Smart Home products or streaming real-time wireless audio (or video) throughout the home. (For more on why your WiFi sucks, read my last blog, titled “Why your WiFi sucks and what you can do about it”).

Here’s an interesting tidbit from Rob Conant, CEO, Cirrent: “Wi-Fi is by far the dominant technology for connected products – the vast majority of broadband homes have Wi-Fi. However, historically it has been too complex to get headless products connected to Wi-Fi. Nearly 40% of the negative reviews of smart home products are the result of connectivity and setup issues. Making it easy for end users to connect products is critical to the success of the industry.”

But the dream of a whole-home, voice-controlled, Smart Home isn’t impossible: using low-latency and high-accuracy sync, Blackfire has developed a software solution that successfully integrates voice AI into a multi-room system. We call it Blackfire Real-time Entertainment Distribution (RED), the industry’s only wireless streaming software framework built from the ground up to overcome the limitations commonly associated with conventional wireless products, truly enabling a whole-home voice-control system. Blackfire RED delivers high-performance multichannel, multipoint and multi-room 5.1 audio wireless streaming across multiple devices over standard Wi-Fi, so you can tell Alexa or your Google Home in your living room to read out a recipe to you when you are in the kitchen, or to play music from Spotify Connect in the bedroom.

As demand for voice-activated smart devices continues to grow and home audio manufacturers develop products to meet the demand, Blackfire will be the key to enhanced performance for today’s consumers and Smart Home dwellers of the future.

In the Shadow of Giants by Rohit Verma

In the Shadow of Giants by Rohit Verma

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Something you hear a lot in Silicon Valley is how hard it is for the little guy to compete against the Googles, the Facebooks, and the Amazons of the world. They have a platform. And, it’s hard to compete against a platform.

A lot of the value of platforms is driven by data and how that data can be used to optimize business decisions. The Economist magazine claims that “The world’s most valuable resource is no longer oil, but data”. No surprise, then, that substantial investment focus by Amazon and Google is in artificial intelligence (see CBInsights’s very detailed analyses on these two companies). For a good understanding of the incumbent value of platforms, however, Facebook’s relatively clean business model is the easiest to examine.

Facebook revenue increased almost 6 times from $5B in 2012 to $28B in 2016. Certainly, a secular increase in internet advertising spend explains part of the trend. More fundamental in this growth, though, is the increase in the number of daily users from 0.6B to 1.2B, and the time each user spends on Facebook properties. More time, individually and as a group, means more opportunity to serve up advertising. And, very importantly, optimizing what ads to serve up and how (hello AI). In that same period, average revenue per user grew from $5 to $16.

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In essence, the platform and the value that it provides is a simple function: # users x time per user. A startup has to do a great job maximizing the amount of time users spend on its properties. But, to achieve a compelling financial model, it will inevitably need a large number of users. Snap ended 2015 with 107M daily users, and averaged $0.6 per user. By 2016, number of users had risen to 158M, and average revenue per user to $2.7.

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Facebook’s strategy is focused on pushing these two numbers up, and the bulk of the $25B it has spent since 2012 to acquire companies was directed at Instagram and Whatsapp. It also made an unsuccessful run at Snap. That failure led to Facebook mimicking Snap by offering camera-related features on its platforms. Instagram Stories alone has reached 200 million active users. Which exceeds Snap’s total active users, showcasing the power of platforms. Facebook now has 1.2B daily users that spend an hour a day on its combined properties. A digital river of information that Facebook gleefully monetizes.

Not every startup can be Snap, and achieving meaningful volume may require leveraging existing platforms. For which the platforms will get a meaningful cut. The other lever that startups have, is to maximize the amount of time users spend on them. Some of the most popular categories of applications are:

  • Social media and browsing: Facebook – an hour a day for each user
  • Video: Netflix – 2 hours; YouTube – 1 hour
  • Gaming: as a category, 2 hours a day
  • Music: Pandora – 1 hour

The killer app would be one that combines all, or a significant subset of these applications into one unified platform.

Sources: “The new face of Facebook” The Economist; “Google Strategy Teardown” CBInsights; “Amazon Strategy Teardown” CBInsights; Blackfire Research

Retail Drives Smart Home Innovation

Retail Drives Smart Home Innovation

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By Rohit Verma
The popular focus on smart home technology is on home automation, such as smart lighting, environmental control, smart appliances and home security. These technologies make up a rapidly growing, multi-billion dollar market. However, that is small change compared to retail. The retail market accounts for a quarter of the U.S. economy, or, about 100 times that of home automation (in 2015, U.S. GDP was $18 trillion and consumer spending accounted for roughly $12 trillion, of which, retail spending was $4 trillion). Growth in retail tracks the economy and has been slow – for instance, Q2 2016 growth was 2% year-over-year.  Online retail, however, expanded 16% over the same period and is now almost 10% of overall retail spending. It is no wonder then, that fighting to win control over this huge prize is the driving force behind The Smart Home Wars.  

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­   The (re)tail winds have shifted the smart home industry to not necessarily make smart products for the home, but rather, making a home smarter so it can buy products. The most ferocious battle for smart home domination is between Amazon and Google, and this battle is already transforming how we interact with our homes.

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A River Runs Through Your Smart Home

With revenues of $100 billion, Amazon is the world’s largest online retailer. Amazon is relentless in its goal to establish and maintain strong, long-term relationships with their customers. They pride themselves on making innovations to make purchasing easier, already taking immense strides to make the home “smarter” for purchases. It comes as no surprise that Amazon’s smart home product direction is geared toward enabling growth in retail sales through immediacy and ease of use.  Amazon’s Dash buttons and the Amazon Echo, along with the Echo’s siblings, the Dot and the Tap, are poster children for a smart home in its formative years.  Dash buttons are essentially free ($4.99 for a $4.99 credit), and each is associated with one of a few hundred household products, such as Bounty paper towels, Tide laundry detergent, even Diet Coke. The Dash Button is simple: a press of a button initiates the product’s purchase and delivery to you (all through Amazon). However, Amazon’s most major advancement in smart home technology is the Echo. Echo is a Wi-Fi connected smart speaker, whose key innovation is its skillful application of voice recognition and AI responses. It can play music, provide web search results, and control home automation devices all through voice command.  Amazon wants to make the Echo indispensable in the home, and provides a platform for third parties to write programs that leverage the Echo’s voice recognition and connectivity.  This will make the Echo’s value increase over time as its functionality expands, much like the Google and Apple app stores. However, the Echo’s main value to Amazon is it’s ability to maintain shopping lists and make purchases from an increasing selection of products through Amazon. This is the biggest step in smart home technology and has set the bar for any competing devices. As investment continues, the Echo will eventually be able to make most of your household purchases on demand or (where AI technology and the market is headed) predictively. This will lead to consumers making more purchases through, and increased loyalty with, the Amazon ecosystem.  

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OK Google…

Google has proven itself the leader in developing AI technologies, placing it at the forefront of innovation for smart home solutions. Although a bit late to the direct-to-consumer marketplace, Google’s heavy investment in AI has it marching into battle with a fully loaded arsenal. When you have $80 billion in cash, you take a few chances. To have a more direct presence in the home, Google has bought Nest and Dropcam, released Chromecast Audio, Chromecast Video and Google OnHub, and even made their own Amazon competing retail delivery service - Google Express.  Most recently and most loudly, Google has released Google Home, a voice-activated smart home speaker.  Google Home was unveiled earlier this Fall to positive consumer and critical reviews. Like the Echo, you can use Google Home to search the web, set reminders and play music from your Spotify account (as well as other streaming services). However, a major reason behind the introduction of Google Home is defensive. Internet advertising continues to comprise the vast majority of Google’s revenue. And, a large part of that revenue is related to retail.  U.S. internet advertising revenue was at $60 billion in 2015, and growing at 23% quarter-over-quarter in Q4 2015.  Of that $60 billion, 22% was from retail, and another 13% from fields closely related to retail. It is the loss of this revenue that Google is threatened by with Amazon’s smart home successes.  Consumers using devices like Amazon’s Echo and Dash undermine Google’s growth in its search revenue: the more a company like Amazon gets consumers to buy directly through their platforms, the lower the need for individuals to search and browse the web to find products, and the less money Google makes through ad sales. Google must protect their search business at all costs.

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The Two Tower Speakers

Amazon Echo and Google Home. Two similarly shaped speakers with similar functionality and similar intent.  So, who will win the “Smart Home Wars?” On the one hand, we have a retail giant with a clear focus on consumers and the ability to churn out innovative products. On the other, a company with, probably, the largest collection of software talent and massive AI skills. Each is fighting for the future of their core business. There are two distinct directions their smart home innovations favor. Amazon is all in for ease of purchase, it’s “one stop shop.” If Amazon makes their shopping experience the most intuitive and convenient, they have a large shot at controlling the retail market. For consumers, however, the captivity of convenience will alleviate pricing pressure on Amazon and lead to higher prices.  At least, prices that are higher than they would otherwise have been. Google is repurposing its basic search engine for smart home products and AI, making it easier for individuals to find the best value for their retail purchases. Google’s investment in AI technology also means that it leads the industry in the most innovative ways to predict what you may want, or need, for your home. The winner may well be decided by whether consumers prefer convenience (Amazon) or whether the ability to find the best deal is more important (Google).

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Back to the Smart Future

Conventional wisdom predicts a bright future for smart home products and solutions. It’s still in the early stages, so what shape the products take and what revenue streams the solutions inspire will only unfold in time.  The importance of retail is driving Amazon and Google to make the Echo or Home indispensable, and to try and make them the “hub” of the future smart home. However, the market is young and growing rapidly each year, and there will inevitably be additional competitors in this space - Apple will certainly play a part, Microsoft will likely build something based on Cortana, Samsung and LG are working on voice-based assistants, and other players like AT&T, Comcast, and Sony seem poised to enter the field. Amazon and Google chose the humble speaker.  The ubiquity of speakers and their naturalness for two-way communication through the clever use of voice interface and AI makes this the most compelling effort so far. But they still have a long way to go. While a hub based on home entertainment is persuasive, consumers are still looking for products that can not only replace existing ones, but connect the entire home into one large system. Amazon and Google’s focus on retail and associated aspects of the smart home experience has led to initiatives that do not meet consumers’ complete home entertainment needs. The natural path for the “Next Big Thing” in smart home technology will incorporate comprehensive wireless home entertainment into the hub:  speakers throughout the whole home with multi-channel 5.1 capability, TVs with varying streaming and gaming platforms, and your smart phone, all connected, all on standard Wi-Fi.

The battle is just beginning, with the field, and combatants, not yet fully defined. The war is nowhere near over.

About Rohit Verma - Rohit is the head of  corporate strategy and CFO at Blackfire Research Corp. He has held executive management positions in wireless and software technology companies, as well as management consulting at A.T. Kearney, with an expertise in strategy, corporate finance, and business development. Rohit holds a Ph.D. in economics from The University of Pennsylvania with a focus on strategy, and received his undergraduate degree in computer science and mathematics.